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Reserve Bank exempts lending for new construction

New residential construction loans will now be exempt from the loan-to-value (LVR) restrictions introduced from 1 October, Reserve Bank Deputy Governor Grant Spencer said today. 

“The Reserve Bank has recently consulted with the building industry and banks on the impact of LVR restrictions on residential construction activity,” Mr Spencer said.  “While high LVR construction lending is only around 1 percent of total residential lending, it finances around 12 percent of residential building activity. 

“This exemption means that low deposit lending will fall outside the 10 percent speed limit if it is financing the construction of a new house or apartment.” 

“However, any new low deposit construction loans will still need to meet the internal risk requirements of the lending banks.”

 Mr Spencer said that the new exemption will apply to all qualifying construction loans from 1 October 2013. 

 “This exemption will help to support the supply of new housing and, in doing so, reduce some of the pressure arising from excess demand in the New Zealand housing market.

 “The Reserve Bank will communicate with banks to clarify which loans will qualify for the exemption.”

 See these questions and answersabout the construction lending exemption from LVR restrictions: http://www.rbnz.govt.nz/financial_stability/macro-prudential_policy/5558625.html

This news release was circulated by the Reserve Bank on December 10.